What Athletes Can Learn From Tim Duncan's Alleged $20M Financial Loss

Several news outlets recently reported that San Antonio Spurs' All-Star Tim Duncan lost more than $20 million to a dishonest financial adviser.

Unfortunately, tales of financial advisors taking advantage of athletes are all too common. That’s because the successful athlete is in a unique and somewhat vulnerable position, and unscrupulous advisors are more than willing to step in to “help” them manage their money.

The Duncan Case

Duncan sued his former financial adviser, Charles Banks, in January and filed a second lawsuit against him November 9th, accusing him of coercing him into investments that eventually resulted in significant financial loss.

“Recognizing that an athlete's earning years are relatively limited, Duncan wanted to invest his earnings prudently and wisely in order to ensure a secure future for his family,” his lawyers wrote in the complaint.

Reports indicate Duncan met Banks, a private-equity investor, during his rookie year in 1998. Banks urged Duncan to invest several million dollars in hotels, beauty products, sports merchandising and wineries. According to the lawsuit, Banks didn’t disclose that he owned or had financial stakes in those entities.

Duncan also accused Banks of defrauding him through a $7.5 million loan to Gameday, a company Banks controlled. Gameday later obtained a $6 million bank loan with what Duncan alleged was his forged signature.

Banks disputes the charges, claiming that Duncan is using the lawsuit simply to remove himself from several deals he and Duncan were limited partners in. Banks also claims he hasn’t acted as Duncan’s financial adviser since 2007.

Duncan said Banks tried to dissuade him from filing the lawsuit, saying he would return the money. But that never happened.

More than meets the eye

The needs of professional athletes are often more complex than meets the eye. Many of these young men and women are fresh out of college and have limited financial literacy. Some have never even had a bank account. Professional sports are so competitive, many athletes must focus 100 percent of their attention on the season and offseason training to maintain their places on the roster.

In addition, as I discussed in a previous blog, it’s often difficult for athletes to relate to traditional investments like stocks and bonds. They tend to think they need to buy a business or a piece of a business, with little or no knowledge on how to run it. Sometimes the investment advisor has a personal interest in the company--either directly or through a family member or associate--he is asking the athlete to invest in. The advisor may not disclose this conflict of interest to the athlete, yet may get a substantial fee or commission to put the athlete’s money into the company.

How can athletes avoid becoming victims of this type of scheme? It’s important that they build a team of independent, objective advisors (accountant, attorney, investment advisor) that will hold each other accountable and act in the client’s best interest. As I discussed in my previous blog about Dwight Freeney’s case against BofA/Merrill Lynch, establishing a team of advisors may be expensive, but it’s justified if it means avoiding the types of financial losses both Duncan and Freeney suffered.

To Duncan’s credit, he says he did employ several people to oversee his investments, but that as time went on he became less prudent and more trusting of Banks, giving him an opportunity to take advantage of Duncan. ''I thought, for the most part, I was keeping an eye on things,” Duncan said in a recent interview. “You have to have people checking on people checking on people. I did that for a while. Obviously, I got to a point where the people I trusted were checking on themselves.”

Duncan also said the NBA does a ''great job'' of informing players of the potential pitfalls when it comes to their money. Still, stories like Duncan’s continue to make the news. Clearly, more needs to be done to help educate and protect athletes.